Understanding Special Needs Trusts and Estate Planning in 2023

A special needs trust is a type of trust designed to benefit individuals with disabilities while preserving their eligibility for government benefits.  Special needs trusts can be an invaluable tool for families of individuals with special needs, as they allow them to provide for their loved ones without jeopardizing their ability to receive government assistance.

There are two main types of special needs trusts: third-party trusts and first-party trusts. Third-party trusts are the most common special needs trusts.  A third-party special needs trust is a type of trust that is established by someone other than the beneficiary, typically a family member. This type of trust is designed to provide financial support for individuals with disabilities without jeopardizing their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI).

One of the primary benefits of a third-party special needs trust is that it allows the beneficiary to receive financial support while still maintaining their eligibility for government benefits. This is because the assets in the trust are not considered to be part of the beneficiary’s resources when determining eligibility for government benefits. As a result, the beneficiary can receive support from the trust without having to deplete their own assets.  Another benefit of a third-party special needs trust is that it allows the grantor (the person who establishes the trust) to provide for the beneficiary’s long-term needs. The trust can be structured to provide ongoing support for certain expenses of the beneficiary.  This can help to ensure that the beneficiary receives the care and support they need without having to rely solely on government benefits.

In addition, a third-party special needs trust can provide greater flexibility and control over the use of funds than government benefits alone. For example, the trust can be structured to allow the trustee (the person responsible for managing the trust) to make distributions for a wide range of expenses that may not be covered by government benefits, such as travel, hobbies, or other forms of entertainment. This can help to improve the beneficiary’s quality of life and provide a greater sense of independence and autonomy.

When establishing a third-party special needs trust, it is important to work with an experienced attorney who is familiar with the laws and regulations governing such trusts. In particular, it is important to ensure that the trust is structured properly to comply with Medicaid and SSI eligibility requirements. This may involve restrictions on the types of distributions that can be made from the trust and limitations on the discretion of the trustee.  In addition, it is important to choose a trustee who is capable of managing the trust effectively and who has the beneficiary’s best interests in mind. The trustee must be knowledgeable about the rules and regulations governing special needs trusts and must be able to make distributions that are consistent with the beneficiary’s needs and desires.  Another important consideration when establishing a third-party special needs trust is the issue of funding.  This may involve contributions from family members, as well as other sources of funding such as life insurance policies.

Overall, a third-party special needs trust can be a powerful tool for providing financial support for individuals with disabilities. By working with an experienced attorney and choosing a trustee who is knowledgeable and trustworthy, families can ensure that their loved ones receive the care and support they need while still maintaining their eligibility for government benefits. Whether you are establishing a trust to provide for a child with special needs or to benefit multiple beneficiaries, a third-party special needs trust can provide peace of mind and financial security for the entire family.

Charlotte-based attorney Christian Perrin is a North Carolina Bar Board Certified Specialist in Estate Planning and Probate Law.  Based in Charlotte, Christian and his team serve clients throughout North Carolina and South Carolina. 

Disclaimer: This information is intended to stimulate thought and discussion and to provide readers with useful ideas in the area of estate planning.  However, this information does not constitute and should not be treated as legal advice or tax advice regarding the use of any particular estate planning technique, device or suggestion.  Our law firm does not assume any responsibility for any individual’s reliance on the information presented.  Each reader should verify independently all statements made before applying them to a particular fact pattern and should determine independently the legal and tax and other consequences of using any particular device, technique or suggestion.